Things you need to know
- It was another RISK OFF day – as the AI hype turns to hysteria.
- It’s not just lawyers and advisors – so strap in…
- Oil and Gold down, Bonds UP.
- CPI at 8:30 am….Oh boy….
- Try the Potato & Onion Soup
In the Morning – Celebration. In the Afternoon – Panic. Capisce?
And today is Friday the 13th – so let’s just get that out of the way!
It was RISK OFF again yesterday…..as the Momo guys and the algo’s don’t know where to go next…first it was software, then its hardware, then its financials, then its real estate, then it’s consumer discretionary, now it’s the metals & miners, gold and silver Are we seeing a pattern here? Weren’t these all the names that led the way higher last year? Weren’t these the ones that may have been a bit ‘stretched’?
Look, the worry over AI and all the disruption it is and is going to create are at the center of this meltdown. The enthusiasm last year IS now hysteria this year…as new tools – released by Anthropic, OpenAI and a host of other lesser-known names – threaten to upend ‘everything’!
The headlines suggesting that AI is “coming for the lawyers” and “coming for Wall Street” is creating all kinds of drama! I say – stop the histrionics…..AI won’t kill industries — it will reprice tasks within industries. It will redefine jobs. What it’s really attacking is the repetitive, document-heavy, process-driven work that sits at the bottom of the pyramid. Research memos. Compliance checks. Underwriting models. Junior analyst grunt work.
The legal and financial headlines grab attention because they’re about white collar and high margin businesses and because those headlines sell ‘newspapers’. (Dramatic headlines sell papers). But here is the reality – AI will compress the lower rungs first – we know that. Billing hours will shrink (that hits the lawyers right between the eyes). Teams will get leaner (ok – the cream will rise to the top). Margins tighten (or maybe not). That’s disruption — not extinction.
And here’s the part nobody wants to say out loud — the next wave isn’t surgeons (robots have already begun that process) and CEOs. It’s insurance processors. Mortgage underwriters. Call centers. HR screening desks. Medical coding departments. Anywhere there’s structured and repetitive workflows – and you are already seeing that everywhere you turn.
But the trades? Electricians. Plumbers. Mechanics. Infrastructure. They are not in danger. Those jobs require human beings to do the work….. So, we can debate all day long about whether AI is a productivity ‘enhancer’ or a white-collar ‘nightmare’, the truth is simpler – it is BOTH!
It is also a massive margin reset. Lawyers and Financial Advisors will survive because they add ‘value’ and they add the ‘human connection’. The AI tools designed for those industries will make those industries better. Investors, traders and algo’s are not reacting to a total and complete collapse – they are reacting to the transition and compression. That transition and compression tends to create short-term panic and price dislocations (and that creates opportunity) but tend to settle down once the outcome is known. So, before you go and toss everything out – talk to your advisor.
Now look –
The VIX spiked by 18%. Transports got smashed – down 4%, Nasdaq down 2%, Mag 7 down 2.3%, SMID’s down 2%, AAPL – 5%, AMZN – 2.2%, META – 2.8%, SOXX – 2.4%, XME – Metals and Miners – down 5.7%, JPM – 2.6%, G – 4.4%, C – 5.2%, XOM – 3.6%, CVX – 1.8%, GOLD -3.9%, SILVER –10.6%, BITCOIN – 3%, SOLANA – 3.6%, Feels ugly, no?
But what would you say if I told you that Consumer Staples were up 1%, WMT +3.8%, COST + 2.2%, DG +0.7%, PG + 0.7%. Utilities added 1.8% – think NEE +0.6%, SO + 1.8%, DUK + 0.7%, AEP + 3.4%, PPL + 1.7%, ED + 3%. Healthcare +0.7%, LLY +2.2%, ABBV + 3%, JNJ +1.5%….
I could go on – but you get the picture, no? Cyclical & Defensive names were up…as the rotation continues.
And of course, the contra trades won big…the SH +1.6%, PSQ + 2.1%, DOG + 1.5%, VIXY + 6.3% while the SPXS rose 4.7%.
At the closing bell – The Dow lost 670 pts or 1.3%, the S&P down 108 pts or 1.6%, the Nasdaq lost 470 pts or 2%, the Russell gave back 53 pts or 2%, the Transports gave up 800 pts or 4%, the Equal-Weight S&P lost 113 pts or 1.4%, while the Mag 7 lost 740 pts or 2.3%.
Yesterday we learned that Existing Home Sales plunged — down 8.4% versus the 4.6% expected. Sounds dramatic… until you remember it was December and January — historically slow months. Seasonal softness doesn’t equal structural collapse. I wouldn’t read too much into it… but you do you.
Today? Different story.
January CPI hits the tape, and it could be another barn burner. Expectations are for a decline in inflation… headline CPI +0.3% m/m, +2.5% y/y. Core CPI the same: +0.3% m/m, +2.5% y/y. If that’s what we get, in theory, markets should celebrate. Inflation is easing, narrative remains intact and the “rate-cut-later-this-year” crowd can breathe.
But… The whisper on the Street is that CPI might come in a little hotter than advertised. And if that happens? Rate-cut bets get pushed further out. The bond market rallies, the algo’s go deeper into sell mode and volatility surges. In the end – I still do not see a need for further rate cuts right now…. but that’s me.
Either way, the countdown has begun. Make sure you’re in your seat at 8:29:30.
Bonds were on fire yesterday…as money rotated out of some sectors and into others and the money that did not get allocated to stocks go allocated to bonds. The TLT up 1.4% the TLH + 1%. And that caused rates to plummet. The 10-yr fell 9 bps to end the day at 4.10% while the 30 yr fell 9 bps as well – ending the day at 4.74%.
Oil got whacked yesterday……falling 2.6% or $1.70/barrel to end the day at $62.84. No real reason – other than it has rallied recently and when anxiety grips the marketplace – the winners get sold. We remain in the $62/$66.50.
Gold got taken out to the woodshed and beaten. It fell $160 or 3.2% to end the day at $4922 – after trading as high as $5100! First – let’s be honest…… gold had gotten stretched, crowded and Momo heavy. Next – When bonds rally, the dollar firms, and rate expectations get recalibrated, gold feels it immediately. And when positioning gets that one-sided, it doesn’t take much to set it off…. especially when the trade was so crowded…. they all ran for the same door. But let’s not be too dramatic – Gold is still up 14% ytd…. this on top of the 2025 advance and the 2024 advance totaling 138%.
Gold remains in the $4,625 (trendline support) and $5,115 trading range.
Bitcoin is trading at $66,500, Ethereum around $1,950, and Solana is at $80.
The dollar was up yesterday and is up again today trading at 97.05. It still remains in the 96–98.50 range, exactly as discussed.
European markets are all lower going into the weekend…Italy taking it on the chin – 1.8%.
This morning US futures are lower again… Dow down 158 pts, the S&P’s down 16 pts, the Nasdaq down 85 pts, and the Russell is down 8 pts.
Today’s earnings lineup – Applied Materials – they crushed it and the stocks is quoted up 10% or $35 in the pre-mkt….and then Arista Networks — that’s your AI infrastructure read. AMAT tells you whether chip capex and foundry spending are still accelerating and they are, while Arista gives you the pulse of data center demand and enterprise AI build-out. If the guidance is strong, then the “AI capex boom narrative stays alive. And based on AMAT – the boom is not over.
Then you’ve got Vertex Pharmaceuticals on the defensive side. That’s your biotech print and if it is strong it reminds investors that earnings growth isn’t just a tech story. Also worth watching – ABNB – Travel – quoted up $5 in the pre-mkt, and COIN – Crypto/Fintech – quoted up $7 in the pre-mkt.
The S&P closed at 6,832 — down 108 points. And once again, we broke through short-term support at 6,894, finishing the day sitting right on top of intermediate support. And this is KEY.
If that support fails, the algos will light up. And when they light up, they will accelerate to the downside. A break here opens the door to a quick test of the November lows around 6,550-ish. And that could happen over the next week.
Now consider this – today is Friday the 13th. (not that I suffer from Triskaidekaphobia)- but Monday IS a holiday. Thin liquidity, long weekend risk, headline sensitivity. If the market doesn’t shake off the negativity early, positioning into the close could get ugly. But remember this – while the sellers are nervous, the buyers might just be licking their chops! Because volatility doesn’t just create fear — it creates opportunity. And the same levels that trigger sell programs for traders and algo’s are the same ones that trigger opportunities for the long-term investor.
But understand something important. Even a pullback to 6,550 is roughly 6.5% off the highs, which is not capitulation. It’s not even collapse. It’s well within a normal trading band. Markets don’t move in straight lines. They advance, they digest, they reset.
Now… the tone changes if we pierce the long-term trendline sitting down around 6,498. That level represents roughly a 10% move off the top and if we pierce it, it takes us into correction territory. That’s the line between a healthy reset… and something that starts to feel a bit more uncomfortable.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
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It’s ugly out there. Grey tape. Grey skies. No leadership. No momentum. Just cold air and colder screens.
So tonight? Make Potato and Onion Soup.
It’s humble. It’s heavy. It’s the kind of meal you eat when the world feels a little… Eastern Bloc ish. (think Moscow) No color, no garnish, just steam rising off the bowl like breath in winter air.
When the market loses its flavor, you don’t reach for caviar — you reach for something that sticks. Something that survives volatility. So here you go –
Potato/Onion Soup –
An easy soup to make and great for a chilly winter night…for this you will need:
2 lbs. of peeled potatoes, 2 lg Vidalia onions, butter, olive oil, beef broth, fresh grated parmegiana cheese, chopped parsley.
Begin by cutting the peeled potatoes into cubes and then rinse in cold water.
Next – melt a bit of butter and oil in a large pot…. now add the sliced onion and sauté until nice and golden brown- keep the heat on low and cook slowly – you want them to brown and not burn.
Now add the cubed potatoes and raise the heat to hi – you have to keep stirring the potatoes and coat in the onions…after about 8 mins or so….add in the beef broth – you want to make sure that the potatoes are covered and then some….- bring to a boil and then reduce the heat to med low and continue to cook. When the potatoes are cooked – you can remove a couple of ladles of the potatoes…. now with the hand blender – puree the potatoes in the soup…. if you think it becomes too thick – then add a cup of broth or water.
Add back the potatoes, stir in a handful (or two) of grated parmegiana cheese and the parsley…taste for seasoning and then serve in warm bowls. Always have extra cheese on the table for your guests.
This isn’t a dinner party dish – this is just for you.
Buon Appetito.